Minister Eoghan Murphy's address at the publication of the RTB's Rent Index for the second quarter of 2017 and further rental sector measures

Minister Eoghan Murphy’s address at the publication of the RTB’s Rent Index for the second quarter of 2017 and further rental sector measures

September 22, 2017

National Ploughing Championships, Tullamore

Welcome

Thank you very much for taking the time to join me this afternoon for the launch of the Residential Tenancies Board’s Rent Index for the Second Quarter of 2017.

I’d also like to thank the RTB for their continued work, both in the context of their comprehensive analysis that enables this Index to be produced, as well as their wider ongoing role in safeguarding the rights of both tenants and landlords.

I’d also like to acknowledge the interest and input from a range of stakeholders and sectors, who have contributed practical suggestions and advice, and I’d particularly like to recognise the important work and advice from Ministers and Government colleagues from the Independent Alliance who have been very active in this policy area.

In walking you through the main analysis of this quarter’s results, I will also use this as an opportunity to update you on just a couple of policy changes that I can announce today insofar as our rolling analysis of Rebuilding Ireland is concerned.

Q2 Rent Index

It is crucial that policy decisions we make are based on and supported by the best available evidence where possible.

This is why this index is so important – designed with the help of the ESRI, it is calculated on actual rents reported to the RTB for tenancies registered during the specific quarter, as distinct from the asking rents which feature in other rent reports.

Data from over 19,000 rents reported to the RTB during the three months, April to June, were used to calculate these results. No other report on rents is based on so large a dataset.

The RTB’s Quarter 2 Rent Index is the second index looking at the period since the Rent Pressure Zone (RPZ) measure was introduced, and so provides some useful initial data to assess the effectiveness of the measure.

Data for Q2 2017 shows that:

private rents rose by just over 6.5% across the country in the 12 months to June 2017.

There is still some volatility in rental trends from quarter to quarter – for example, while rent price growth was relatively flat in Q1 2017 (at 0.04%), rent increases of close to 3% were recorded between April and June.

Rents in Dublin increased by 3.3% in Quarter 2, compared to a decrease of 1.7% recorded in the first three months of the year.

So, what do these latest statistics tell us?

Firstly, rents in Dublin have risen by just over 1.5% in the six months since Dublin was designated a Rent Pressure Zone. If this trend is repeated over the next six months, the annual rent inflation in Dublin in 2017 will be around 3%, a significant improvement over the 8.5% increase registered in 2016.

Secondly, outside Dublin, rents for both houses and apartments have grown by 4.4% in the first six months of the year, which points to annual growth rates of around 8%.

While these figures provide some signal that the RPZs are having an effect in moderating rent increases, it’s not yet clear whether these measures are fully achieving their desired effect.

Nor can we be complacent, with rents in Dublin now standing almost 11% above the previous peak in 2007. Outside the capital, rents are 7% below their 2007 peak, but this gap is closing.

Anecdotal evidence, which seems to be borne out by some of the data returns, is that the RPZ legislation is not being complied with by some landlords, who are looking to get around the increase limits imposed, for example, by using the refurbishment exemption to charge higher rents or reset the market rent.

We believe that actions the above may be leading to a higher presentation rate of families in to our emergency accommodation services.

However, there also seem to be some tenants who are equally willing to pay over the legal rents permitted in order to secure properties in a supply-constrained market.

Measures like the RPZs take time to bed down. It takes time for people to understand them and for the changes in behaviour that they induce to become clear.

This is after all a significant policy change for the rental market. It’s only right, with such a change, that we keep it under review – as we have been, to understand the practical changes that RPZs may have had on the market, intended or otherwise.

It’s also necessary, as we seek to make further modifications, that these changes are thought through fully – we don’t want to do something that may have a negative impact on the market, to the detriment of renters and landlords alike.

New RPZ Areas

As per my previous commitment to announce changes to policy as decisions are made, I am today announcing what I believe will be important improvements to the rental market.

First of all, I am pleased to be able to take action to designate two new areas that now meet the qualifying criteria to be designated as RPZs – these are Drogheda and Greystones.

Both have witnessed exceptional rent increases in four of the six quarters previous to Q2 of this year. Both areas also have an average rent that is above the national average.

I signed the Designation Orders yesterday to give effect to this, so the RPZ status takes effect from midnight tonight.

Definition of Substantial Refurbishment

We know that there has been some concern about landlords using the “substantial refurbishment” exemption to step around the RPZ legislation and to use minor, cosmetic works to change a tenancy or seek a rent increase outside of the 4% cap.

We also know that landlords have sought guidance on interpretation of the measure so as to ensure their compliance with this new law.

I am instructing my Department and the RTB to formulate a definition of what constitutes “Substantial Refurbishment” of a dwelling that will issue from the RTB as guidance. This clarification will be communicated to landlords in the coming weeks by the RTB as part of their wider awareness campaigns on the RPZ measures. I expect this definition to be approved by the RTB Board and published by the end of the month.

This clarification guidance may ultimately benefit from being put on a statutory footing and I am examining whether this can be incorporated into an existing Bill progressing through the Oireachtas or if stand-alone legislation is required.

By way of an example as to what the RTB’s guidance might look like:

– “Substantial refurbishment” should involve major renovation works, such as rewiring, extensions, increasing the number of bedrooms or substantially reducing energy usage through insulation or new windows and doors, which clearly improve the quality of the accommodation being offered, to the extent that would merit an increased rent. It’s not envisaged that this would include merely cosmetic improvement works like re-painting of a property or new carpets/flooring.

This clarification will allow landlords to be more certain that a rent agreed on the basis of a refurbishment exemption will not be challenged. It will also allow tenants to assess whether an exemption being claimed by a landlord is merited.

Short-Term Lettings

The rise of the sharing economy has led to a growth in the availability of short-term lettings for tourism purposes, with a corresponding need for an increased supply of rental properties in those same areas.

This is particularly the case where high housing demand coincides with high tourist potential – such as in Dublin and Cork.

It seems clear to me that a new licensing system may be needed to properly regulate this relatively new “home-sharing” market. A cross-Government working group including, amongst others, the Department of Transport, Tourism and Sport and Fáilte Ireland as well as my own officials, is working to design and establish an appropriate licensing and regulatory system for short-term lettings.

This will take more time to develop. In the meantime, I have instructed my Department to prepare specific guidance and advice for local authorities, which should issue in the coming weeks, to inform their decision-making on planning applications related to short-term lettings.

Just to be clear, I think that home-sharing – renting a room in your house for overnight guests or letting your whole home while you are on holidays – is a good idea. This can be an important source of income, helping “home-sharers” meet the costs of mortgages, rents or other household expenses – and actually supporting tenure security. It also supports tourism and associated economic activity and even social and cultural exchange.

But home sharing needs to mean actually home sharing.

When landlords who normally provide residential rental accommodation turn to short-term lettings or when investors purchase residential units for the same purpose, these homes are lost to the housing system, and can exacerbate the already tight supply of properties for normal renting.

A Proper Regulator for the Rental Sector

The RTB is doing an outstanding job. But they believe, and I agree, that they can do more – that they need to do more.

The RTB needs to be given the powers and the resources to take on a regulatory responsibility in the rental sector.

Because of the scale of such a task, this can’t happen overnight, but we are now exploring the changes needed in legislation and in the Board’s financing arrangements. Together, we will put together a two-year change management plan, essentially beginning now, that will progressively see the RTB become the sector’s regulator over the next year or two.

What exactly will this look like?

– We’ll make it an offence to implement rent increases that contravene the law and the RTB will be given the powers to investigate and prosecute landlords who implement such increases. The onus will no longer be exclusively on the tenant.

– The RTB will move towards annual registration, rather than one-off registration when a tenancy is registered; this will enable the RTB to move eventually to a self-financing model where their income can fund their regulatory and advisory services.

– This will also improve the Board’s data capturing abilities, which is key to understanding trends and behaviours in the rental market, and informing future policy decisions.

– The RTB will undertake detailed analysis of the rent data they gather to provide benchmark rents for different property types. Given the varying market conditions across the country, this will be a challenging undertaking, but one that I know the RTB is ready to take on.

– Enhanced data will also allow us to deal with the problem of those currently charging abnormally low rents and who have been caught by the RPZ laws. I want to legislate to allow landlords in these circumstances an increase that is greater than the 4% standard rent increase and that takes into account the level of rent they are currently charging.

– A Deposit Protection Scheme will be established, operated by the Residential Tenancies Board, to handle deposits and to manage disputes efficiently so that decisions are delivered and money is returned quickly. Under this new scheme, the RTB will be able to define a deposit at one month’s rent.

This is not an exhaustive list of the changes needed, but an indicative one, and priorities for legislation will be determined as part of the change management plan.

We won’t be waiting until 2019 for the RTB to take on these enhanced roles – rather, additional powers and functions will be rolled out in the intervening period according to priority.

Homelessness and Prevention

At the Housing and Homelessness Summit earlier this month, I announced a number of targeted measures aimed at sustaining tenancies, so that people facing difficulties in their tenancies do not end up in homelessness. These include:

The requirement that landlords notify the RTB when they issue a notice of termination;

An awareness campaign informing people of the services available to them, including the Tenancy Protection Service; and

The strengthening and national roll-out of the HAP Place-Finder Service to help HAP recipients to find tenancies and support homeless households by paying their deposit and first month’s rent.

In addition, the reforms to the Mortgage to Rent scheme, which I will be announcing in the next fortnight, will help keep people, who cannot afford their mortgage payments, and who are eligible for social housing, out of homelessness by allowing them to remain in their homes as tenants.

I am also very conscious of the precarious position that some tenants are finding themselves in where their landlord’s property is taken over by a receiver. Unfortunately, this is the case for many small-scale and “accidental” landlords who bought their rental properties with mortgages, that are now in significant arrears. In these circumstances, the financial institutions holding these non-performing mortgages may look to appoint receivers to the rented properties and institute proceedings to take possession, with the intention of selling the property, particularly in the current property market where prices are rising.

Under current legislation, a receiver appointed to the rental property is not regarded as a landlord and is therefore not required to fulfil the landlord’s obligations under the legislation, which can leave the tenant in a very difficult and vulnerable position, especially where normal rent setting procedures or the notice period to vacate a property are not respected.

A working group, established by my Department to examine the feasibility of amending legislation to ensure that tenants’ rights are protected during receivership, considers that there is a sound legal basis for addressing this anomaly through amending legislation.

I have therefore asked the group to submit their report to me as quickly as possible with specific recommendations on the legislative amendments required to ensure that tenants’ rights under the Residential Tenancies Act are maintained when buy-to-let properties are taken into receivership. I will act quickly to bring in these protections.

Landlord specific measures

I will be announcing further measures over the coming weeks that will have a positive supply impact on the rental sector.

These will include actions on getting more vacant properties back into use, especially in our cities and town centres where there is strong demand for rental accommodation. I am also devising a range of measures to increase the supply of new homes to rent at more affordable levels, particularly for working families on moderate incomes.

In addition, I have been working with Minister Donohoe to review the tax and fiscal treatment of rental accommodation providers with a view to ensuring that it is appropriate and fit for purpose.

Our Departments have been working closely with Revenue and the RTB, exploring options for consideration in the context of Budget 2018 that could have the potential to support supply in the rental market.

Minister Donohoe is currently examining the report of the Working Group established to undertake this review, and is considering the potential options set out therein.

Both Minister Donohoe and I are mindful of the need to move forward in a considered, sure-footed manner, to bring greater stability and consistency to a market which relies on long-term investment decisions.

We need to recognise and value the critical contribution that private landlords make to meeting the housing needs of our people.

I am very conscious that there has been a lot of change for landlords over the last number of years and that this is still going on, as we strive to deliver a well functioning rental sector that works for both landlords and tenants.

Change can be disruptive – but the changes currently underway, and to come, will hopefully be viewed as positives if they can bring greater consistency, stability and transparency for landlords and tenants alike.

As we indicated when we launched Rebuilding Ireland, all of these policy areas are being kept under review, to ensure that the existing measures are having the desired impact and to identify new initiatives where more concerted action is warranted.